Certain Lloyds customers are due receive payouts
Lloyds Bank is set to pay some customers £829(Image: jax10289 via Getty Images)
Some Lloyds customers are set to receive £829 from the bank following its confirmation that it will not launch a legal challenge against a compensation scheme. Lloyds is to pay the money to compensate customers who were allegedly mis-sold car finance, according to reports.
It is believed that they may have been overcharged due to DCAs – ‘discretionary commission arrangements’ – where dealers were able to increase interest rates to earn more commission from a sale. Many lenders did not properly disclose important information to customers about their agreements and this broke laws and Financial Conduct Authority – FCA – rules in force at the time, reports The Express.
Lloyds Banking Group had previously considered launching a legal challenge against the FCA redress scheme, as it believed the regulator had failed to comply with court judgments. However, it changed its decision earlier this year, saying that while it disagreed with the findings it believed that ‘moving forward’ to be the right step..
More than 12m drivers, representing 37% of agreements made, are set to receive a portion of an estimated total of £7.5bn after being tied up in unfavourable lending arrangements and overcharged for car finance between 2007 and 2024. That means certain eligible customers will receive an average payout of £829 by Lloyds in compensation.
A Lloyds spokesperson said in an emailed statement in April: “We have carefully considered the FCA motor finance redress scheme. While we remain disappointed in and disagree with its conclusions, we believe that moving forward with the scheme is now the right step for our customers and shareholders.”
The issue concerns motor finance agreements taken out between April 6, 2007 and November 1, 2024, the majority of which involved DCAs, a practice banned by the FCA in 2021. This allowed brokers and car dealers to inflate loan interest rates; so increasing their own commissions.
The FCA found that the practice was unfair as customers were not informed of the agreement nor had the opportunity to negotiate or access more competitive market rates. The car finance compensation scheme was launched in March.
It has been partially suspended due to legal challenges from lenders but the FCA is believed to be planning to fight these, with the case due to be heard either in December or next 2027. If the scheme is upheld, and the judgment is not appealed, the FCA expects payments under the scheme to begin in 2027.
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